Some key home loan rates have fallen to their lowest ever levels as lenders battle for business and amid expectations that interest rates are not going to rise soon, according to a leading economist.
The analysis by Michael Saunders, an economist at Citi, says the average rates on both a two-year fixed-rate mortgage and a two-year variable-rate home loan with a discount are now at record lows.
The typical tariff on a two-year fixed-rate deal requiring a deposit or equity of 25% or more fell to 2.08% in December, and is down just over half a percentage point since the middle of last year, said Saunders. He added that this was main benchmark mortgage rate at the moment, given the huge appetite for this type of deal.
In recent weeks the mortgage price war has intensified, with borrowers able to put down a deposit of 40% or more now having access to two-year fixed mortgages at rates as low as 1.29%. That rate was offered by HSBC, whose subsidiary, First Direct, has launched what is thought to be the lowest ever five-year fix: a deal priced at 2.39% that is available to those able to afford a deposit of 35% or more.
Lenders have been taking advantage of cheap funding driven by low inflation and expected delays in lifting interest rates. Last week Barclays launched the lowest ever 10-year fixed-rate loan. It allows borrowers with at least a 40% deposit or equivalent equity in their existing property to fix their rate at 2.99% until 2025.
Saunders said the average rate on a two-year variable-rate mortgage with a discount fell to 1.63% in December, and was down by 110 basis points since July. He added, however, that while the average rate on a lifetime base-rate tracker mortgage requiring a deposit of at least 25% also fell last month, at 2.86% this was still marginally above the mid-2014 low of 2.76%.
Saunders said: “The drop in mortgage rates over recent months reflects a mix of lower swap rates and lower spreads on mortgage lending … The overall result is that even while the Bank rate has been unchanged for nearly six years, monetary stimulus continues to expand – and, together with the boost to real incomes from lower petrol prices, this is likely to help ensure that the economy continues to grow strongly during this year.”
Meanwhile, one of the UK’s largest homebuilders, Taylor Wimpey, reported that house prices were growing more slowly, which it said “should create a healthy and more sustainable market”.
The firm, which builds one- to five-bedroom homes, said prices were rising more slowly at the end of 2014, although its average selling price rose by 11% over the course of the year to £234,000.
While house prices surged in 2014, growth is expected to slow this year amid expectations of higher interest rates, uncertainty caused by the general election and fewer foreign buyers.
